Hint: Desperation Makes You Smarter
The year was 1984, and I was struggling at my family’s printing business. We were losing money, so I’d eliminated every expense I could find. I cut the receptionist, the entertainment, the overtime. And none of those moves made any difference whatsoever.
Desperation forced a different question: What if I could find one product that was more profitable than the others?
Because we had lots of products. So I compared profit by product category for a sample of jobs that we kept in worn, paper folders. The data wasn’t perfect and the sample size was small, but the revelation was huge: complex jobs were not making their estimated threshold, while simple direct marketing letters were quietly making money.
Then came the second question: What if I could find a customer who was more profitable than the others?
Same process. For a customer sample, I calculated real margins.
The pattern shocked me: The most prestigious clients, ad agencies, were the least profitable. And they were demanding because their moving timetables and changing specifications relentlessly squeezed margins. Meanwhile, magazine customers just motored along. Steady, profitable, no drama.
My process from then on was simple:
- Rank products by profitability.
- Rank customers the same.
- Smush these two lists together
That intersection, profitable products sold to profitable customers, is the core business. (And, yes, “smush” is a technical term in management accounting.) The core is critical. Everything else is distraction. Or worse, destruction.
I’ve refined this thinking into a core product, core customer “X-Ray” visual. The methodology has evolved, but the insight remains: companies can’t thrive when they abandon their core.
Next post: How to smush the core into a meaningful analysis.